Compensation and benefits management

Foundation Certificate in HRM

Compensation & Benefits

Managements

Organizational Goals & Strategies

• All departmental goals and strategies

(ex: recruitment strategy &

compensation strategy ) should be

aligned with, supportive of, and

leading to the goals and objectives of

the organization.

Organizational Goals & Strategies

• Long term strategic objectives have short

term requirements.

• All executives , managers, HR, should

understand how all the short term and

departmental objectives and strategies are

integrated and interact towards achieving the

long term objectives of the organization.

Development of an Organization

• How does an organization develop?

Activities in the Development of an Organization

Grouping Tasks into Jobs

Defining Work Unit Activities

Determining Objectives & Goals

Formulating Organizational Strategy

Developing Policy

Identifying the mission

Establishing a Philosophy

Establishing a Philosophy

• The philosophy of an organization establishes general guidelines and provides standards for decisions and actions taken.

• Describes the values of top management.

• A positive relationship between the values of the members of an organization and the philosophy-based behaviours of leaders is an important factor of success.

Identifying the Mission

• The Mission Statement details the reason for the existence of the organization. It describes in broad and general terms what the organization wishes to accomplish: the product it intends to provide and how it intends to provide it.

• It identifies desired results that must be translated into actions.

Developing Policy• The policy must support the mission of

the organization.

• It must be broad enough to relate to different actions and behaviours required of the various work units.

• Must be understood by all members of the organization.

Formulating Organizational Strategy

• Responsibility of top management.

• Provides the foundation for future growth and development of organization.

• Must have a clear vision and be realistic.

• From OS, sub-strategies are developed.

• All action plans and departmental goals and tactics should promote the accomplishment of the organizational objectives.

Determining Objectives & Goals

• Translate mission statement into specific output requirements.

• Into more specific short-term goals for work units.

• Establish levels of performance needed.

• In making this transition from strategic to tactical operations, the most effective and efficient means of accomplishing the organization’s mission must be determined.

Defining Work Unit Activities• Each unit must develop its own function

statement.

• It identifies the principal activities of the work unit.

• It assists in integrating the top-down established organizational objectives and goals with the assignments of each working unit.

Grouping Tasks into Jobs

• From the activities assigned to each

work unit come the tasks assigned to

specific individuals in the unit. (tasks,

duties, and responsibilities of a job).

Employees- A critical resource

• Quality & quantity of organizational

output depend on the skill, interest,

and effort of employees.

Employees: A critical resource: Division of labor

The basis of employer – employee exchange process is the division of labor and performance.- Board of Directors- Senior Managers- Operating Managers- Sales people- Technicians- Skilled Workers- Semi skilled workers- White, blue, and pink collars

Employees- A critical resource

• It is important to understand the effect

of Pay Satisfaction, Job Satisfaction,

and Organizational Satisfaction on

individual behaviour of employees.

Pay Satisfaction• Employees compare their pay rate with: co-

workers and workers in other organizations with identical or similar assignments, and others performing different activities.

• Result of comparison influence the employee’s performance, or even his or her decision to stay or leave the company.

Job Satisfaction

• Recognition of a job well done, an

opportunity to advance in the current

job or current career ladder, taking a

bridging job to a new career path… all

enhance job satisfaction.

Job Satisfaction & Pay Satisfaction

Pay and job satisfaction are entirely

different but they interact and influence

each other. A positive view of one can

improve the other.

Organizational Satisfaction

• Includes, but not limited to, job satisfaction and pay satisfaction.

• Can be promoted by recognizing and understanding organizational philosophy and policies.

Organizational Satisfaction

• Security in employment can minimize frustration and stress arising from job and pay dissatisfaction.

• Recognizing fairness in all personnel decisions might limit frustration about a specific issue.

Satisfaction• Reward Systems should be designed,

developed, and implemented in a way leading to improved employee pay, job, and organizational satisfaction.

• Satisfaction is individually based and dynamic.

Satisfaction

• In an employment perspective: satisfaction means the fulfillment of an obligation (employee and employer).

1- What the organization expects from you2- These are the rewards we offer you in exchange for the availability of your skills and efforts (Compensation & Benefits)

Compensation

Cash, Bonuses, Insurance, Vacation, HolidaysPerks, Recognition

What is compensation

• Compensation & Benefits are also

known as Total Rewards

• An exchange of payment from an

employer for the services provided

by employees

Organization’s Strategic Focus

• C & B (Total Reward System) refers to all forms of financial and non-financial returns (cash & non-cash) employees receive from their employers.

• The concept behind C & B approach is to motivate employees to give more by fulfilling their needs.

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What is Compensation?

• Compensation represents both the

intrinsic and extrinsic rewards

employees receive for performing

their jobs.

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Extrinsic vs. Intrinsic Compensation

Core compensation

• Hourly wage

· Annual / monthly salary

Core compensation

• Hourly wage

· Annual / monthly salary

Adjustments to core

compensation• Cost-of

living· Seniority

· Merit· Incentive· Person-

focused

Adjustments to core

compensation• Cost-of

living· Seniority

· Merit· Incentive· Person-

focused

Total Compensation

Total Compensation

Extrinsic Compensation

Extrinsic Compensation

Intrinsic Compensation

Intrinsic Compensation

Legally Required Employee Benefits• Social

Security Act • Workers compensatio

n laws · Family &

Medical leave Act

Legally Required Employee Benefits• Social

Security Act • Workers compensatio

n laws · Family &

Medical leave Act

Discretionary Employee Benefits Health insurance

Disability insurance

· life insurance · retirement

plans · paid time-off

· Accommodation and

enhancement

Discretionary Employee Benefits Health insurance

Disability insurance

· life insurance · retirement

plans · paid time-off

· Accommodation and

enhancement

Job characteristics• Skill variety• Task identity

· Task significance· Autonomy· Feedback

Job characteristics• Skill variety• Task identity

· Task significance· Autonomy· Feedback

Extrinsic vs. Intrinsic Compensation

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Extrinsic Compensation.

• Core Compensation1) Salaries (Monthly).2) Wages (Hourly, Daily, or Weekly).

• Cost-of-Leaving Adjustment (COLAs).1) Consumer Price Index (CPI).2) Seniority Pay.3) Merit Pay.4) Incentive Pay.5) Person-focused Pay (Pay-for-Knowledge and

Skill-Based Pay).

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Extrinsic Compensation• Employee Benefits:

Legally Required Benefits1) Social Insurance2) Sick leave.

Discretionary Benefits (not legally obligatory):1) Health Insurance2) Life Insurance.3) Retirement Plans.4) Paid time-off.

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Compensation

• In many organizations,

Compensation & Benefits costs are

the single largest operating

component.

Compensation: A Definition . . .

• All forms of –financial return, –tangible services –benefits

that employees receive as part of their employment relationship

Definitions

Compensation:A money value is presented in return of an employee efforts doing certain tasks or jobs for definite or indefinite time frame . It varies in terms of formation and type presenting based on the nature of job. It is an obligatory right forced by law.

DefinitionsBenefits: A certain type of financial or non financial rewards are presented for the purpose of rewarding & recognition, to the employee in returns of his efforts doing a job. Some benefits are obligatory and some are not forced by Law.

DefinitionsSalary:A money value is presented in return of an employee efforts doing certain tasks or jobs, on monthly or annually basis. Manly are given to white collars.

Wage:A money value is presented in return of an employee efforts doing certain tasks or jobs, on hourly or daily basis. Manly are given to Blue collars.

Compensation systems

• Should reflect the idea that employees are valued contributors in the success of the organization.

• Should promote fair treatment.

Some Compensation Strategies promoting fair treatment• Relating job worth to differences in job

requirements.• Recognizing the worth and value of skills

and knowledge.• Rewarding employee contributions and

results achieved.• Promoting continued employee

acquisition and upgrading of knowledge and skills.

Some Compensation Strategies promoting fair treatment• Supporting team and work unit

cooperative efforts.• Designing compensation plans that

compete within labor markets.• Aligning compensation of all employees

with objectives & goals of organization.• Providing a compensation package that

enhances current lifestyles and provides long-term protection for employees.

Compensation Policy Objectives

• To Reward Past Performance• To Remain Competitive in Marketplace• To Maintain Equity Among Employees• To Motivate Future Performance• To Maintain a Realistic Budget• To Attract New Employees• To Reduce Turnover

compensation & benefits

• A competitive compensation & benefits

program:

- Attracts

- Retains

- Motivates

Compensation

• Used to Serve Organizations Goals• Enhance Employee Needs but Create Profits• Relative Worth of Job• Significant Part of HRM• Formal Policy Essential

Corporate Policies, Competitive Strategy and Compensation• The compensation plan should support and be

aligned with the firm's strategic aims.

• HR compensation manager will write the policies in coordination with top management, in a manner that is consistent with the firm's strategic aims.

Compensation Policy Issues• Pay for performance• Pay for seniority• The pay cycle• Salary increases and promotions• Overtime and shift pay• Probationary pay• Paid and unpaid leaves• Paid holidays• Salary compression• Geographic costs of living differences

Compensation Policy Issues

• Whether to emphasize seniority or performance is a compensation policy issue.

• seniority-based pay may be of advantage to the extent that employees seek seniority as an objective standard yet a disadvantage is that top performers may get the same raises as poor ones.

Compensation Policy Issues

• Salary Compression is a salary inequity problem generally caused by inflation resulting in longer-term employees in a position earning less than workers entering the firm today.

• Prices go up faster than company's salaries and firms need a policy to handle it, One policy is to install a more aggressive merit pay program, Others authorize supervisors to recommend equity adjustments for selected employees who are both highly valued and victims of pay compression..

Compensation Policy Issues

• Geography : cost of living differences between

cities can be considerable; employers handle cost

of living differences to give the transferred person

a nonrecurring payment, others pay a differential

ongoing cost in addition to one time allocation,

while others simply raise the employee's base

salary.

Compensation Policy Issues

• Compensating Expatriates employees:

multinational companies compensate expatriate

employees those who are sent overseas using

two basic international compensation policies;

home-based and host-based plans.

Components of a Total Compensation

• Financial• Direct– wages, salaries, commissions, bonuses

• Indirect– insurance plans• life, health, dental, staff meals, laptops & mobiles

– social assistance benefits• retirement plans, social security

– paid absences• vacations, holidays, sick leave

Components of a Total Compensation

• Non-Financial• The Job– interesting, challenging, responsible– opportunity for recognition, advancement– feeling of achievement

• Job Environment– policies, supervision, co-workers, status

symbols, working conditions, flextime, compressed work week, job sharing, telecommuting, flexible benefits programs

Components of a Total Compensation

• There are two ways to make direct financial

payments to employees:

• you can base them on time or on performance.

• Time-based pay is still the foundation of most

employers' pay plans.

Pay-for-Performance Standard

Standard by which managers tie

compensation to employee effort and

performance.

Pay-for-Performance Standard

• Merit Pay• Cash Bonuses• Incentive Pay

Components of a Total Compensation• It is common for Blue-collar workers to get

hourly or daily wages while others like managers or white collar employees are paid by month .

• The second direct payment option is to pay for performance, piecework is a good example, it ties compensation to the amount of production or number of pieces the worker turns out while sales commission is another example.

Components of a Total Compensation

• Employers often create pay plans in which

employees receive some combination of time-

based pay plus incentives.

• Several factors influence the design of pay plans:

legal, union, company policy and equity.

Compensation & Benefits

Basic Factors in determining pay rate in any organization:

Legal Consideration

Compensation policies

Union influences

Cost of living & Inflation rates

Markets Demand & Supply

Financial positioning ( Ability to pay)

Internal & External Equity

Factors that Influence Wage Levels External Factors Internal Factors

WAGEMIX

Conditions ofLabor Market

Area WageRates

Cost ofLiving

CollectiveBargaining

LegalRequirements

CompensationPolicy of

Organization

Worth ofJob

Employee’sRelative Worth

Employer’sAbility to Pay

Pay EquityAn employee’s perception

that compensation received is equal to the

value of the work performed.

Equity

Equity is an employee’s perception

that compensation received is equal

to the value of the work performed

Equity and Its Impact on Pay Rates

External equity

Proceduralequity

Internal equity

Individualequity

Forms of Compensation Equity

Equity

• The equity theory of motivation assumes that people have a need for, values and seek fairness at work . There are four forms of equity:

• External Equity: how a job's pay rate in one company compares to the job's pay rate in other companies.

• Internal Equity: how fair the job's rate is when compared to other jobs within the same company.

Equity• Individual Equity: the fairness of an

individual's pay compared with his/her co-workers earnings for the same or similar jobs within the company based on each individual performance.

• Procedural Equity: the perceived fairness of the processes and procedures used to make decisions regarding the allocation of pay.

Methods to address equity issues

• Salary surveys to monitor and maintain external equity.

• Job Analysis and Job Evaluation to maintain internal equity.

Methods to address equity issues• Performance Appraisal and various types of

incentive pay to maintain individual equity.

• Communications, grievance mechanisms and employees' participation in developing the company's pay plan help employees view the pay process as transparent and fair.

• Some firms administer surveys to monitor employees' attitudes regarding the pay plan, but others maintain strict secrecy over pay matters.

Compensation & Benefits System

1- Direct Compensation (Pay System)

2- Indirect Compensation (Benefits)(some are legally mandate and some aren’t)

Direct Compensatio

nIndirect Compensation

Total Compensation

Base Pay

• Wages

• Salary

Incentives

• Commissions

• Piece rate

• Bonuses

• Stock Options

• Profit Sharing

• Gains Sharing

Pay for Time Not Worked• Vacations• Breaks• Holidays• Sick Days• Jury Duty

Insurance Plans• Medical• Dental• Life

Security Plans

• Pension

• Social Security

• Disability Insurance

Employee Services

• Educational Assistance

• Recreational Programs

• Food Services

Compensation & Benefits

Com & Ben – Methods of payment:

A) Direct Payment ( Financial) : Position ( title) Basic Salary / Wage Bonus Commission Profit Share Incentives Cash Allowances Overtime.

Compensation & Benefits

Com & Ben – Methods of payment:

B) Indirect Payment ( Benefits) : life insurance Social Insurance Medical Insurance Staff Meals Housing options Transportation tools lap tops Clubs memberships

Compensation & Benefits

Com & Ben – Methods of payment:

B) Indirect Payment ( Benefits) : Staff loans Uniforms Staff sales Mobiles phones Public Holidays Paid Vacations Training & Development plans

Bonus

• Incentive payment that is supplemented to the base wage.

Profit Sharing

Any procedure by which an employer pays, or makes

available to all regular employees, in addition to

base pay, special current or deferred sums based upon

the profits of the enterprise.

Gain sharing Plans

Programs under which both employees and the organization share the

financial gains according to a predetermined formula that reflects

improved productivity and profitability.

Piecework

Work paid according to the number of units

produced.

Straight Piecework

• Incentive plan under which employees receive a certain rate for each unit produced.

Classification

• Exempt

• Non-Exempt

Exempt Employee

Employees not covered by the overtime

“Management”

Nonexempt Employees

Employees covered by the overtime“Labor”

Consumer Price Index (CPI)

• Measure of the average change in prices over time in a fixed “market basket” of goods and services.

“Inflation Influence”

Escalator Clauses

• Clauses in labor agreements that provide for quarterly cost-of-living adjustments in wages, basing the adjustments upon changes in the consumer price index.

Real Wages

• Wage increases larger than rises in the consumer price index; that is, the real earning power of wages.

Relationship of CompensationManagement to Other HRM Functions

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How the Compensation Function fits into HR Department:

Compensation, Recruitment, and Selection.Compensation and Performance Appraisal.Compensation and Training.Compensation and Employee Termination.Compensation and Employee Relations.

Legislation &

Compensation

Key Compensation Legislation- Minimum wages- Periodic annual increment (7% الثابت علي

) التأميني- Deductions( تأمينات و (ضرائب- Social security and public health insuranceصحي ) تأمين و اجتماعي (تأمين- Overtime- Profit Sharing- Leaves- Unemployment insurance- Income tax exemption

Minimum Wages• National Council for Wages established under

the chairmanship of the Ministry of Planning.التخطيط لوزارة التابعة لألجور العامة الهيئة

• Wage is to be determined by individual contract, if not the worker shall be entitled to a wage of equivalent position.

• Wages (even based on production or commission) cannot be less than the minimum wages stated by the council.

Annual Increment

Minimum periodic annual increments:Employees are entitled to a periodical annual increment of not less than 7% of the basic salary on which the social insurance subscriptions are calculated insured

التأميني 7% ) الثابت الجزء (من

Deductions• Employer cannot deduct more than 10%

from worker wage for payment of money employer had loaned to him/her.• Under certain conditions 25% can be

deducted for settlement of debt (by court order)• Increased to 50% for alimentary debt.

(النفقة)

Social Security and Public Health Insurance• Employers and employees must pay social

insurance contribution.• Monthly basic salary up to 987.5 L.E (26% by

employer & 14% by employee)في عليه التأمين يمكن الذي األقصي الحد

هو التأميني الثابت كلما 987.5الجزء و جنيهالمعاش يزيد الجزء هذا زاد

• Variable up to 1590 L.E (24% by employer and 11% by employee)

في عليه التأمين يمكن الذي األقصي الحدهو المتغيرالتأمين زاد 1590الجزء كلما و جنيهالمكافأة تزيد الجزء هذا

Overtime Pay• 35% of normal pay for overtime work

during day light on a working day.

• 70% for overtime worked at night on a working day.

• 100% on rest day

• 200% on official holidays

Profit sharing• Employees of a Joint Stock Company, limited

Liability Company ( with a capital equal or more than L.E 250,000), or foreign branch are entitled to a share in the distributable profits

• The share is fixed at an amount not less than 10% of the distributable profits and not more than the total annual salaries of the employees.

Leaves

• Annual Leaves

• Public Holidays

• Maternity Leave

• Pilgrimage

• Sick Leaves

Unemployment Insurance• A law that establishes a fund to compensate

workers/employees whose wages are suspended due to firm closure or downsizing.

• The fund’s resources come from 1% deduction from the base salaries of the employees in firms with over 30 workers, and government contribution.

المرتبات 1% إجمالي علي شهريا ) طوارئ) لصندوق التأميني األساسي

العاملين

TAXATION LAWS

Tax Law 91 year 2005 Tax Law 111 year 2013